JoeGallo

Published: 23 July, 2008

Two years ago there was a press visit to Gallo's headquarters in Modesto and to its Livingston winery (which claims to be the largest in the world). Letting the press into the heart of the Gallo operations would have been unthinkable a few years before. Since then, I have been chasing the chance to meet Joe Gallo, the man at the centre of what is probably the largest single wine brand in the world.

I seemed to get close last autumn, but the trail went cold. Then suddenly the phone rang a few weeks ago and I was asked, completely out of the blue, if I was still interested. The interview was on. And do you know what? I was excited. There must still be the heart and soul of a journalist ticking away in this middle-aged hulk.

I flew out to San Francisco at a few days' notice, and from there was whisked up to Healdsburg in Sonoma, on the border of Russian River Valley and Dry Creek Valley, the epicentre of Gallo's premium wine operation. Gina's 'playground'.

Next day at the hard-to-find Frei Ranch, discreetly tucked away off Dry Creek Road, I met up with Stephanie and Gina Gallo, directors of marketing and winemaking respectively, to hear about the major change to the company and taste some of their top-end Coastal, Sonoma and Estate wines.

Basically, the family has decided to drop the 'Ernest & Julio' and change the name to Gallo Family Vineyards (see News, 5 May). This has probably caused much heart-searching for the family, bearing in mind that 97-year-old Ernest is still alive (Julio died over a decade ago in a car accident).

Nevertheless, it reflects better the nature and reality of the business, because Ernest is no longer actively involved in the running of company. He has handed over the reins to his son, Joe, and there are around nine other family members also working in the business.

Gallo as a company is admired and respected, but once upon a time it was feared as well. Undoubtedly, Ernest was not only a smart operator but a ruthless one.

In the not-too-distant past Gallo was aggressively defensive and quite secretive (it's a private company so it is not obliged to publish its accounts or anything else for that matter). It was difficult to find out much, other than the information conveyed in a constant stream of standard messages about the brands.

But there has been a noticeable change over the past few years. Possibly as Ernest's influence has declined and Joe's has grown, the company has become more open.

This also coincides with it becoming more international. Coincidently, on the day I met Joe Gallo, President Bush flew into the West Coast on Air Force One and stayed overnight in a resort complex just over the mountain range in Napa Valley.

When I heard a distant noise while talking to Stephanie and Gina, a frisson went through the ranch. Suddenly everyone was jumping around, putting the finishing touches - Joe was coming in in the helicopter.

Then I saw him out of the corner of my eye, an older man, short by the standards of today's young men, about 5' 7", dressed casually in a red shirt and chinos with a friendly face but guarded expression, surrounded by two huge PR guys. Shades of the president. Which one puts himself in the line of fire?

He started by giving a potted family history. Ernest and Julio started in 1932. They were 23 years of age. These were hard times. Professional people were selling apples on street corners to get something to eat, according to Joe. There was 20% unemployment. The wine industry was a shambles due to Prohibition. Grape vineyards had been torn out and wineries abandoned. It was a case of starting from ground up.

Unlike other winemaking dynasties, who boast about being 'x generations of winemakers because grandpa grew grapes in Piedmont or Trentino', the Gallo brothers saw an opportunity, got themselves a pamphlet on how to grow grapes and set about giving it a go. 'They made a profit every year and put it back into the business,' says Joe curtly.

Where the Gallos were visionaries was in building the business for themselves and taking control of everything that affected it. For example - there was a problem, a strike, so their supply of bottles was in danger of drying up.

Ernest went out and hired some of the best people in the glass industry, and they built a glass factory that, to this day, churns out the bottles for Gallo's domestic and premium wines. They also created a brand early on rather than just supplying grapes and/or juice to others. Control, all the time control, over your own destiny.

Ernest also saw the importance of building and securing his distribution lines. It may all be standard stuff now, but there weren't even rockets for there to be science about back then.

'I started in sales, my dad's legacy, so that he could develop the distribution system. He was way ahead of the time. I am a real student of how he operated. His style was to get involved with the incredible detail, to understand the bedrock [of the business], and go up and build a pyramid. Understanding on the ground what took place. Successful generals are out there in front seeing how the ground is laid,' says Joe.

'When I became CEO four or five years ago, I had to change management style. The first thing was to shape good decision making in the company. That was done by:

re-evaluating objectives and incentives

building a team of people by assessing, developing and retaining good talent.

'We had to establish/focus priorities and that comes down to strategy. It is important to develop where and how to compete and when. Part of focusing is prioritisation - resource allocation, what and how, so we can fund what we are doing.

'It is important to be detail-oriented and also to be visible. I meet the employees. They want to know what the company is doing so I try to make myself accessible. I go into a department and try to go down two or three levels, you learn a lot. People take pride in working and I like to see first hand. See what challenges and opportunities there are,' says Joe.

'Our basic philosophy is that people are basically good, respectful, whatever their station in life. The biggest waste of resources is among human resources. It is important that they can blossom within the work ethic. We have a tremendous opportunity to bring young people on and move them through the organisation. We have a lot of creative talent.

'My dad was active into his 80s. He had experience, perspective and judgement. People like that need to be retained to find the balance.'

Joe says they formed a 'symbiotic relationship with UC Davis (a branch of the University of California, which is world famous for oenology).

'Lots of techniques such as filtration and pasteurisation were borrowed from other industries,' he says. 'Dad believed that at some point research had to be developed specific to the industry. My son (Ernest J, director of innovation) has a scientific background and is working with innovation and technology within that group. They are looking at ways of fermentation, how wines should be processed - proprietary ideas for improving wine.'

Seemingly modest and self-effacing, when I suggested he masterminded and spearheaded Gallo's international thrust, Joe corrected me curtly, stating that he was 'part of the team'.

Joe comes across as guarded, careful, precise. Although he does not appear to be a person who smiles and laughs readily, one senses a warmth, and he raised a smile and chortled on a couple of occasions during the interview. A hard-nosed businessman yes, but a family man as well.

When I asked him which other family members worked in the firm, he rattled off names, relationships and jobs so fast my shorthand failed to keep up.

Nevertheless, the key members appear to be: cousin Bob, Julio's son and co-president; Bob's children, Matt (vice-president, north coast operations), Gina, John (vice-president, Gallo glass) and Tom (G3 Enterprises director and general manager); Joe's children Stephanie and Ernest J, already mentioned; Christopher, who is the son of David (who does not appear to be active in the company) and grandson of Ernest, is business analyst - global sourcing.

So, the company is firmly in the hands of the second and third generations, but there are also fourth and fifth generations, as well as brothers-in-law, already in and working their way up.

He states: 'I believe in the fundamental logic that a person should do what he wants to do. You cannot be good if you're not passionate. There are a lot of areas of opportunity [in the business]. People have the opportunity to go into areas they find of interest. Not everyone in the family comes into the business. The worst thing is to insist strongly, because they will not be happy. We are looking for professional standards and they have to grow within the organisation based on ability.'

After a pause, he adds: 'The family exists for the business, the business does not exist for the family. We want people to go in to make it better and follow the dreams and aspirations of the founders. The have to perform as others do - hopefully better.'

Gallo was the world's largest wine producer until Constellation took over BRL Hardy in April 2003, and followed that up by acquiring Robert Mondavi in December 2004. We have also seen the Foster Group take over major Australian rival Southcorp.

It and The Wine Group, also Californian but more into commodity wines, are snapping at Gallo's heels. As a family-owned and run company, isn't it in danger of being left behind?

'Constellation is a great company but we have taken a different direction,' says Joe.

'We believe we have to build from within and develop brands rather than just buy them in. I believe there are enormous opportunities, so many that I am concerned about what we do not see. We have seen the market grow in ways and directions that are very powerful. One of the biggest is for upscale wines. I think that is a tremendous advantage in the development of our wines.'

Certainly in recent years we have seen Gallo buy smaller wineries and develop brands that represent a region and/or are known for a particular grape variety.

They include: the MacMurray ranch in the Russian River Valley, known for cool-climate Chardonnay and Pinot Noir; Louis M Martini in St Helena, Napa Valley, thus acquiring a world-class Napa Cabernet Sauvignon; Bridlewood, near Santa Barbara for Syrah, also close to the huge Los Angeles market; and Mirasou, near Monterey, south of San Francisco Bay, known for its Chardonnay. Not forgetting Gallo's original holdings in Sonoma, Julio's passion. It is the largest landowner in the region.

On top of that the international division has been busy as well. Rather than go for straight takeovers, Gallo favours joint ventures and distribution deals. It has a flourishing relationship with McWilliams and it looks to McGuigan Simeon to source liquid for its Black Swan brand. That covers Australia.

In Italy, Gallo has a roster of brands: Maso Canali, Ecco Domani, Bella Sera and the deliciously named DaVinci. Needless to say the latter is 'on fire', as Joe Gallo puts it (due to the Da Vinci Code book, film and recent court case for anyone who has lived in a box for the past few years).

The brand is owned in Europe by Cantine Leonardo Da Vinci, a grower's co-operative in the Tuscan town of Vinci. Gallo licenses the brand for distribution in the US only. Last year it was up 186%, this year only 60%... so far. As for France, most of us know about Red Bicyclette, but there is also Pont d'Avignon.

The company has New Zealand covered with a joint venture with Whitehaven, and recently announced a Chilean brand, called Via Chilcaya, made by Via Bisquertt. That seems to leave only South AfricaJoe reserves a special mention for the company's relatively new brand, Barefoot.

Again he describes it as 'on fire'. He says proudly: 'If we had hired people on huge amounts of money, they would not have come up with this idea. It represents California in terms of lifestyle.

It is a subliminal concept for wine.' He goes on to opine: 'One of biggest challenges, in my opinion, is that for too many years wine has been an elitist beverage that only sophisticated, super-knowledgable people talking about vintages and terroir can enjoy. For them it is all about small amounts and all very esoteric - an intellectual discussion, like talking about books. New World has brought good wines to the average person.'

'It is very intimidating to see thousands of bottles,' Joe says '"What am I supposed to do?" consumers ask. They often end up not buying any. Brands make it easy to make that decision. They can then go on and experiment and make a more esoteric selection. Brands help consumers make that choice.

With Barefoot, you see it and remember it. You do not have to be an expert. It is a casual wine, capturing a lifestyle. You are not expected to know the vintage, it is just approachable. It helps the industry in bringing wine to people. They may then venture off and try other wines. Barefoot makes it easier to get people into the wine category,' concludes Joe.

So, what do you think of the British? 'I like the British,' he replies. 'At the business level, they are similar to the US. Tough, but fair. And when they say they are going to do something, they do it. We like that environment and that is why we are relocating our international office to London [with a new head poached from US food giant Kraft].

'I first came to England 35 years ago and the only California wine selling was Paul Masson carafes. There were no Australian wines as I recall. It was not a robust market. Basically, there were French wines, which, at an affordable price, were not very good.

'Gradually, but then pretty quickly, the British public got to like wine and now England is the most competitive market in the world,' recalls Joe.

'We were doing about 300,000 cases and I remember 15 to 20 years ago flying back, I wrote an extensive report and stated that "some day we may get this up to one million cases" (pause). Last year we sold five million cases and the growth is still enormous going forward. I think there is an incredible opportunity for Californian wines and a major opportunity for Gallo Family Vineyards to trade the consumer up. We have to bring in products that are differentiated and support price points. We have to develop that word-of-mouth, third-party endorsement - our Coastal and Sonoma and Estate ranges are part of that strategy - and trade people up once they are in the category. The category is going very fast in the US. I see no reason why it should not happen in the UK,' says Gallo.

Of the recent changes, he says: 'Every company evolves. You have to re-evaluate every 10 years, otherwise you become irrelevant.

The evolution at E&J Gallo is that there are now nine folks in the business, in important aspects of the business from winemaking to new technology, trying to make the best improvements in the quality of the wine.

Gallo Family Vineyards is a natural evolution.

'People like to know that a family is still involved, overseeing the vineyard, making best efforts to make better products, constantly upgrading the quality. We are still buying new equipment and extensively replanting vineyards. We have new winemakers focusing on quality. The consumer is too smart. If he tries something and doesn't like it, he will not buy it again,' he says.

'Basically, we are uniquely suited to the wine industry where you have to think long term. The advantage of a family business is we can think eight or 10 years and we will get a return on our investment.'

Gallo points to new state-of-the-art, temperature-controlled fermenters at Frei Ranch called, Redwood Row. He says: 'We use them for six to eight weeks a year and the rest of the year - nothing! In a brewery they would be working seven days a week, 12 months of the year. That was a tremendous investment and we had to think long term.

He goes on: 'A family business is unique in brand building as it takes a long-term proposition. You have to maintain quality, maintain distribution channels, gain third-party endorsements - it takes a long time to get into restaurants and stores. There are no short cuts.

'The industry is in great need of innovation and research and quite frankly that is long term with uncertain results. To survive in the future, you have to research and invest to develop. Also, this industry is all about relationships so we have tremendous involvement with our employees and there are relationships with distributors, retailers, restaurateurs and with the gatekeepers, such as wine writers. We have that personal involvement.'